Q1: Hello, Arun. Let me start with a question on our strategy. Where are we on our overall strategic plan?
Extensive research by Mckinsey, Gartner, Forrester etc. have validated that the maximum IT spend for global banks in the next 5+ years will be on Progressive Modernization. In the last 6-8 quarters, we embarked on the leadership program of preparing Polaris to leverage these opportunities.
There were two key challenges that we faced:
Such BIG opportunities are available only with the CIOs of Top 100 Banks (who spend over 60% of Global IT budgets). Therefore it was imperative to build a relationship of ‘TRUST’ with the top 100 banks and to get the golden opportunity of executing the critical FIRST ASSIGNMENT. In this context, I would like to touch upon the entry into a shopping mall. As with most of the super-malls, entry can be through the main door, or even from the basement parking lot. Once you get into the mall, then the same market place is open to all! We chose the ‘parking lot entry’ into global banks through our Expertise based Solutions!
We needed to take the big decision of investing significantly. A large amount of the profits generated by our services business needed to be ‘invested’ in order to position Polaris as a niche player in the Financial Technology Space. Since this also involved migration of our business model, it was like repairing the engine of an aircraft in flight. Preparing our sales & account management teams & back office delivery teams for the new business model meant that we were in ‘maintenance’ mode and not in ‘acceleration’ mode.
Q2 : What is Polaris’ new business model & in the new model, what would be the growth engines for Polaris?
By migration of our business model, I was referring to our movement from a pure Cost-Arbitrage based services business model to Asset-based services business model.
Polaris has three distinct growth engines.
Intellect-Led Services Business, that has gained momentum through wins in UK, Middle East & new markets such as Latin America, Australia & the Nordic region
Domain-Led Services Business, validated by our relationships with the Wall Street banks
Regular Application Maintenance Services (AMS) Business.
Growth Engine 3 is the regular Cost-Arbitrage based business model and we have rightly gauged that, for a mid-sized company, such service margins will always be under pressure.
Engine 1 is a naturally high-margin business, based on specific intellectual assets (GeneS, or Generalised Services) enabling Polaris to accelerate building and delivering solutions to the customer. Here we are competing with a few local players with ‘local’ pricing but we have the advantage of IP as well as the India cost advantage.
Engine 2 is built on deep understanding of the domain, that is, what is critical to business in the areas of Consumer, Corporate & Investment Banking.
Engine 1 & 2 are Asset-Based Services Model, where our domain expertise and Intellectual property are fully leveraged. Currently, about 10% of our revenues can be categorised into Growth Engine 1 & 10% into Growth Engine 2. In the next 3 years, Engine 1 & Engine 2 business will expand significantly.
Q3: How does the Investor know that the ‘transformation strategy’ is working?
We grappled with ‘how to measure success during transformation’, after we put together the architectural pieces of our transformational strategy. We monitor some of the leading indicators that reflect the ‘health’ of the transformation:
‘Acceptance of value proposition’, envisaged at the market place We started marketing our new Services Oriented Architecture (SOA) led Banking Solution for Progressive Modernisation from the third quarter of fiscal ‘04-05. Over the last 18 months, this concept has been accepted by more than 16 banks out of top 100 global banks.
‘Can the company deliver’, against the promised strategy?
The very first delivery of our solution be it in Shinsei Bank in Japan, Lloyds Bank in UK, or in a leading bank in Australia was the most critical piece in the transformational agenda. This is the ‘Make or Break’ stage.
‘Is our expertise being validated’, through repeat-sales?
The team at Polaris was very enthused by the market interest on our solutions. For instance, our Intellect Cash & liquidity solution was selected by 4 High Street Banks in the UK within the year. All these wins were against very well established global product companies. Intellect Wealth Management solution has been selected by a leading bank in Singapore and a leading Private Sector bank in India in the same quarter, Intellect Lending solution has been selected by Shinsei Bank, a German leasing giant and two leading banks in Australia. After such validations, we now have a large and expanding sales funnel.
Recognition in the market place / Positioning
Polaris was rated as the winner in the category ‘Specialty Application Development Leaders’ in Jan 2006, by Global Services, an international integrated media brand, owned by CMP - Cyber Media LLC.
Q4: Fair enough. But continued investments directly lead to profitability issues...
In this regard, I would like to draw an analogy with the investments that we all do with our cash. We can invest into investment products offered by the banks; we can invest into capital markets or invest in real estate, etc.
We believed that investing in Intellectual Property has the highest returns and that is what we have done. Therefore we have been able to create and deliver Point Solutions in Cash & Liquidity, Wealth Management, Consumer Finance etc to High Street & Wall Street banks.
However, for a pointed answer to your question, from this year, we will begin to fully leverage the investment into our Product suite as well our BPO subsidiary, Optimus. Optimus has grown by over 300% in the last year. I believe that all these will lead to profitable growth for Polaris in the coming year.
Q5: So, where do we go from here?
Industry Analysts have forecast that in the next 5 years, a significant chunk of the IT spend by Global Banks will be around modernisation of IT infrastructure. The growing needs of modernisation are already being felt by large banks that have pioneered technology automation in the 70’s & 80’s.
Polaris is well positioned to serve these global banks using Progressive Modernisation, which is a non-disruptive ‘Platform Refresh’ for Multi-National Banks. We also have a phenomenal value proposition for our customers by implementing SECURE & AGILE solutions with distinct IP advantage.
Polaris has penetrated 4 out of 7 High Street Banks in UK, 6 out of top 10 Wall Street Banks, 4 out of 7 large banks in Australia, 3 out of 4 top Private Sector Banks in India and 15 out of the Top 50 Banks in the world.
The annual IT budgets for our current customer base is over $ 32 billion. Our singular focus for the year will be to expand and grow our customer relationships. We now have a business model that is sustainable for 7-10 years and we are passionate about executing this model with conviction.
Q6: We heard that there have been changes in the Leadership Team to drive the new business model...
The Leadership needs to be completely Aligned, in order to produce committed results. Polaris is on a transformational journey for the second time in its history. We made the significant decision of choosing a ‘hybrid’ model involving scale as well as expertise. We were looking for a Chief Operating Officer and Arup Gupta, an industry veteran, moved from TCS to Polaris. Arvind Mishra moved from IBM Global Services to Polaris, to head Talent & Change.
During the Build & Expand phase, the key challenges are to prepare our teams to ‘Ask the right questions’ and ‘Co-create solutions with the customer’. With the Indian market being nascent (I mean, in the early stages of growth), we are making sensible investments to build our talent in order to meet the ‘mature’ demands of global banks. After defining the spectrum of offerings, we spent significant energy in training and growing the sales force in order to meet the demands of a discerning customer base. Our sales and account management team has grown by 50% in the last year. We have also completed the Digitisation initiative and put in robust internal ERP & decision-support systems.
Q7: And finally, what is your message to the Shareholders?
I greatly value the opportunity to reach out to all the shareholders. This year has been a complete validation of our strategy in the market place and our conviction & patience have begun to yield results.
The proof of a company value is the ‘pedigree’ of its’ customers. Going by this, having strong relationships with 15 out of the Top 50 Banks is a remarkable achievement and a reflection of your faith in Polaris. The highlight of the year was winning the prestigious CMP-CyberMedia Award for being the leader amongst Specialty Application Services Provider.
It has not been an easy task to have a 30,000 feet view as well as a feet-on the ground view - delivering on the transformational agenda as well as the immediate quarterly agenda expected by the market.
This involves making the turns at the right speed akin to car racing. There will be pit stops. It is very reassuring to have supportive shareholders, while we gather our energies for the next lap.
(Arun Jain, Chairman & CEO, Polaris Software was interviewed by Priya Badshah, Manager - Corporate Communications, Polaris)